6
Petitioner contends that he carried on his jewelry design
activity for profit in 1990 and 1991, and thus was entitled to
deduct expenses incurred in carrying on this activity as a
business. Although it is not clear from the record, we do not
believe that petitioner contends that he carried on his
correspondence school activity for profit; rather he contends
that it was in the development stage in 1990 and 1991. Further,
petitioner testified that he did not claim any expenses related
to this activity on his 1990 and 1991 returns, except to the
extent that the expense was part of the overhead for his jewelry
design activity as well. Therefore, although petitioner
testified at length concerning the correspondence school
activity, we shall confine our discussion to petitioner's jewelry
design activity.
Deductions are a matter of legislative grace, and petitioner
has the burden of establishing that he is entitled to any
deductions claimed on his return. New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). Taxpayers must maintain
adequate records to substantiate the amount of any deductions.
Sec. 6001; sec. 1.6001-1(a), Income Tax Regs.
Section 162 allows deductions for ordinary and necessary
expenses paid or incurred in carrying on a trade or business.
Section 212 allows deductions for ordinary and necessary expenses
paid or incurred in the production of income. Section 183
generally limits allowable deductions to the extent of gross
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